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TOPIC: Rental income

Rental income 9 months 2 weeks ago #97075

Hi,

I have moved into with my girlfriend and am about to let my flat. I was wondering how much and when The amount I pay to my ex will increase.


My understanding is:

• Whether or not I deduct interest on my mortgage, letting agent fees, management fees, landlord insurance and the amount I pay for a British Gas home care agreement from the rent I receive my pay does not increase by more than 25% so my ex won’t be able to get the maintenance reviewed right away.

• I will deduct the previously mentioned allowances from my rental income earned from April 2019 to March 2020 and will register for self assessment in October 2020. I will declare anything I earn at the end of January 2021 and it will be in my p60 in April 2021. This will then be reviewed by the child maintenance service in March 2022.

• The child maintenance service will only take into account what I declare to the HMRC, not not the income from my flat before I deduct the allowances.


Am I correct in my understanding? If not would someone be able to correct me?

Thanks,

Nick.

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Rental income 9 months 2 weeks ago #97077

  • Yoda
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My knowledge on that is relatively limited I'm afraid.

You're probably better having a chat with Child Maintenance Options who will be best placed to advise you.

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I have several years experience supporting parents in family proceedings as a McKenzie Friend. I am, however, not a lawyer or barrister and my responses are based on my own opinions or experiences of the family court.

Rental income 9 months 2 weeks ago #97090

Hi,

I'm not totally clear on your circumstances, but the answer really depends how you're managing the rental income. For example, are you setting up your own limited company for this? Are you also in permanent employment or have any other companies? A few variants:

1) If you're in permanent employment elsewhere, then I suspect child maintenance would simply continue taking information from your employer regarding your PAYE income and not necessarily be aware of your rental income. However, be aware that your ex could appeal if she knows you have this income - in which case it will be investigated.
2) If you're self-employed, or employed by your own limited company, then child maintenance will base their calculation on your HMRC tax return. So if your rental income is on your tax return it will be considered as income. Assuming you receive rental income this tax year ('18-'19), it would be on your Jan 2020 HMRC tax return. The child maintenance service would then see this on your next annual review after Jan 2020.

I'm not sure on the technicalities regarding how your rental expenses (such as agency fees) would be factored into a maintenance calculation.
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Rental income 9 months 2 weeks ago #97092

Thank you for your reply Spring555. I’m in full time employment but I will be telling the HMRC about the rent I’ll be receiving. My ex will figure it out when she realises my boys aren’t staying at my flat anymore. Say I make £10,000 from my flat but only have to pay tax on £6,000 (once I deduct interest and letting agent fees etc) what will be used to calculate the child maintenance? The £10,000 extra I make or the £6,000 I have to pay tax on?

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Rental income 9 months 2 weeks ago #97094

Hi there,

Sorry, I don't know enough about the technicalities regarding rental income and whether or not the CMS would use your gross figure (£10k) or net figure (£6k).

I'd suggest a conversation with NACSA. They helped me through some child support issues I was having and are very knowledgable & reasonably priced. I think it's £30 for a 1-month telephone subscription where you can ask them any number of questions you want about this type of stuff.

One other thing to be aware of is the new asset variation that's just come in. Again, I don't know the details inside/out, but I think the gist is that if you have assets over £32k then, if your ex appeals on these grounds, the CMS could treat 8% of your total assets towards their maintenance calculation. For example, if you had £100k assets, the CMS would apply a further notional income of £8k in their calculation. What that means is that if your salary is £30k, they'd use £38k for their calculation. Your primary residence does not contribute towards to 'total assets', but you should check what happens in your situation when you've moved in with your girlfriend and your flat is no longer your primary residence ........

Thanks.
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Rental income 9 months 1 week ago #97098

Thanks Spring555. It looks like the asset variation is part of the 2003 scheme: researchbriefings.files.parliament.uk/do...BP-7773/CBP-7773.pdf
It also looks like my ex can ask for a variation if she knows about my unearned income. If she does the CMS would have to let me know. Lastly, unearned from a property is the rent minus expenses such as the interest on the mortgage and the letting agent fees.

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Rental income 9 months 1 week ago #97132

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CMS maintenance is based on taxable income, and rental income is taxable income BUT you are correct in deducting expenses, so if you get £10k in rental income, but have to pay £4k in expenses, then your taxable income is £6k, and that is what HMRC will tax you on. The only possible complication is the recent change (I believe) in limiting tax relief on rental mortgage interest to 20%, even if you are on the higher rates of tax, and don't forget that only mortgage interest is tax deductible, not the capital repayment element.

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